federal reserve

The Federal Reserve has raised interest rates
again despite President Donald Trump’s opposition.

The Fed’s key interest rate has been increased by 0.25% to a target range of
2.25%-2.5%.

However, the Fed officials also said future increases could come at a slower
pace amid concerns about global growth.

The move comes two days after President Trump warned the Fed against making
“yet another mistake” in raising rates, urging it instead to
“feel the market”.

The president also urged the bank not to wind down a multi-billion dollar
stimulus program brought in after the financial crisis.

President Trump – who appointed the Fed’s chairman, Jerome Powell – has
repeatedly blamed the central bank for unsettled markets and dismissed analysts
who cite other factors, such as rising trade tariffs.

His remarks have put pressure on the Fed, as presidents generally avoid criticizing
the bank publicly, for fear of politicizing the institution.

President Trump tweeted: “I
hope the people over at the Fed will read today’s Wall Street Journal Editorial
before they make yet another mistake. Also, don’t let the market become any
more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t
just go by meaningless numbers. Good luck!”

At a press conference on December
19, Jerome Powell defended the Fed’s independence, saying that political
pressure played “no role whatsoever” in its discussions or decisions.

The Fed’s chairman added that the
central bank had no plans to change its ongoing reduction of its portfolio of
Treasuries and mortgage-backed securities.

The central bank has been gradually
raising the benchmark rate since 2015, moving the US away from the ultra-low
rates put in place during the financial crisis to spur economic activity.

The decision, which was widely
expected, marked the ninth increase since 2015 and the fourth this year.

However, the moves have made
borrowing more expensive, contributing to slowdowns in some sectors, such as
housing.

With economic growth expected to
slow, some worry that further increases risk stifling economic activity.

On December 19, officials did cut their forecasts for economic growth in
2019 to 2.3%, down from the 2.5% they anticipated in September.

Estimates released by the bank showed most Fed members expect two rate
increases in 2019 – not three, as previously forecast.

It follows a downturn in financial markets and concerns about slowing growth
in the US and abroad.

However, Jerome Powell said the strength of the US economy – which is
expected to grow about 3% this year – justified another rate rise, despite
recent “cross currents” that have weakened the outlook.

He said: “We think this move was
appropriate for what is a very healthy economy.

“Policy at this point does not
need to be accommodative.”

In its official statement, the Fed also said increases to its benchmark rate
would help the US economy sustain its expansion, keeping the unemployment rate
low and inflation near 2%.

Shares sank after the announcement, reversing earlier gains. The Dow and S&P 500 closed about 1.5% lower, while the NASDAQ fell than 2%.

The euro has strengthened in recent months, as the eurozone’s economy improves and markets predict the European Central Bank could start to cut back the money-printing program it has been running to repair the ravages of the eurozone crisis and credit crunch of the late 2000s.

The dollar was also undermined by August 25 annual meeting of central bankers at the Jackson Hole resort in Wyoming at which Federal Reserve chief Janet Yellen’s speech gave no hint that the central back was planning any policy change that would support the dollar.

At the same event, European Central Bank President Mario Draghi did nothing to talk down the euro.

Euro strength has left the pound at its weakest for almost a year. It buys 1.0759 euros in the wholesale currency markets, making a euro worth a much as 92.95p.

Sterling buys $1.2955 currently.

Tourist rates tend to be below those of the markets, sometimes by quite a bit.

On June 14, policymakers said they aim to reduce that balance sheet, by reinvesting payments from those securities only above certain caps, totaling $10 billion.

The cap would escalate in three month intervals. It would start implementing those policies this year, assuming economic growth continues.

Janet Yellen said she’s not sure how far the committee will want to reduce the holdings over the long run, but she said they would be levels “appreciably below” those seen in recent years though larger than before the financial crisis.

The Fed raised interest rates for the first time since the crisis in December 2015.

Policymakers acted in December 2016 and again in March.

The June 14 decision was made with an 8-1 vote, with Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, dissenting. Neel Kashkari also voted against the March rise.

Interest rates remain low by historic standards. The board expects to raise rates at least three times this year.

The moves depend on the strength of the economy, which has been mixed.

On June 14, the US Labor Department reported that prices for goods excluding food and energy increased by 1.7% from May 2016, slowing steadily from earlier in the year.

That fell short of the Fed’s target of 2%.

Janet Yellen said the bank is aware of the shortfall and it was “essential” to move back to the target.

However, she said this year’s data may be skewed by one-off factors, such as lower prices on cell phone plans.

“It’s important not to overreact to a few readings,” she said.

“Data on inflation can be noisy.”

For US consumers, interest rate increases tend to lead to increased borrowing costs.

The Federal Reserve aims to keep the cost of lending between banks within a specified band, which it does by buying or selling financial assets.

It is raising that band by a quarter of a percent.

Fed Chair Janet Yellen said the committee judged that a “modest increase” in the rate is appropriate “in light of the economy’s solid progress.”

She added: “Even after this increase, monetary policy remains accommodative, thus supporting some further strengthening in the job market, and a sustained return to 2% inflation.”

The decision was approved with a 9-1 vote. Neel Kashkari, the head of the Fed’s regional bank in Minneapolis, cast the dissenting vote.

This is the second time the Fed has raised rates in three months. It signaled that further hikes this year will be gradual.

The Fed’s statement said its inflation target was “symmetric,” indicating that after a decade of below-target inflation it could tolerate a quicker pace of price rises.

Wall Street stock indexes jumped after the announcement, with the Dow Jones Industrial Average up 112 points at 20,950 in afternoon trading.

The US dollar fell about 0.9% against the euro and more than 1% against the pound.

The Fed’s outlook for the economy changed little, with officials expecting economic growth of 2.1% this year and next year before slipping to 1.9% in 2019.

Those forecasts are far below the 4% growth that President Donald Trump has said he can produce with his economic program.

However, Janet Yellen told reporters that she didn’t believe it is “a point of conflict” between the Fed and the Trump administration.

“We would certainly welcome stronger economic growth in the context of price stability, and if policies were put in place to speed growth… those would be very welcome changes that we would like to see,” she said.

Janet Yellen said it was wrong to speculate on Donald Trump’s economic strategy without more details.

She added that some members of the Federal Open Markets Committee (FOMC), the body which sets rates, have factored in to their forecasts an increase in spending.

As a consequence, the FOMC said it now expects three rate rises in 2017 rather than the two that were predicted in September.

Janet Yellen told the news conference: “We are operating under a cloud of uncertainty… All the FOMC participants recognize that there is considerable uncertainty about how economic policy may change and what effect they may have on the economy.”

Also, the Fed chairwoman declined to be drawn on Donald Trump’s public comments about the central bank, and his use of tweets to announce policy and criticize companies.

“I’m a strong believer in the independence of the Fed,” Janet Yellen told journalists.

“I am not going to offer the incoming president advice.”

The interest rate move had been widely expected, and followed the last increase in 2015.

Rates have been near zero since the global financial crisis. But the US economy is recovering, underlined by recent data on consumer confidence, jobs, house prices and growth in manufacturing and services.

Janet Yellen said the rate rise “should certainly be understood as a reflection of the confidence we have in the progress that the economy has made and our judgment that that progress will continue”.

Although inflation is still below the Fed’s 2% target, it expects the rise in prices to pick up gradually over the medium term.

The Fed also published its economic forecasts for the next three years.

These suggest that the Federal Funds rate may rise to 1.4% in 2017; 2.1% in 2018; and 2.9% in 2019.

GDP growth will rise to 2.1% in 2017 and stay there, more or less, during those years.

The unemployment rate will fall to 4.5% over the 2017-2019 period, the Fed forecast.

Inflation will rise to 1.9% next year and hover at that level for the next two years.

The dollar rose 0.5% against the euro to €0.9455, and was 0.9% higher against the yen at 116.17 yen.

Following the Fed’s announcement, Wall Street’s main stock markets were largely unmoved, but drifted lower later. The Dows Jones index closed down 0.6%, and the S&P 500 was 0.8% lower.

The head of the Federal Reserve, Janet Yellen, has warned financial conditions in the US had become “less supportive” of growth.

The Fed released Janet Yellen’s prepared comments ahead of her latest appearance before Congress.

The central bank raised interest rates by 0.25% for the first time in nine years in December 2015.

In the prepared testimony, Janet Yellen said: “Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers and a further appreciation of the dollar.

“Against this backdrop, the [Federal Reserve] Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labor market indicators will continue to strengthen.”

She said the decline in China’s currency, the yuan, had “intensified uncertainty about China’s exchange rate policy and the prospects for its economy”.

“This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth.”

While Janet Yellen said she was confident China’s economy was not facing a “hard landing”, the Fed chief said the overall uncertainty created by the world’s second-largest economy was behind some of the steep falls in global commodity prices, which in turn were creating stress for exporting nations.

Janet Yellen added that “low commodity prices could trigger financial stresses in commodity-exporting economies” as well as in commodity-producing firms around the world.

If such problems materialized, she added, “foreign activity and demand for US exports could weaken and financial market conditions could tighten further”.

Following her prepared testimony Janet Yellen responded to questions in Congress about the new way in which the central bank implemented its last rate rise.

Congress is concerned the new policy benefits the country’s banks more than the American public, because banks receive a higher interest rate on the reserves they hold at the Fed.

Supporters of the interest rate on excess reserves (IOER) policy say it allows the Fed to maintain control of the market.

Janet Yellen has called the policy a “traditional tool” for adjusting rates, citing its use by other central banks around the globe. The Fed was given the power to offer IOER by Congress in 2006.

US stock markets opened higher after the comments.

Recent stock market turmoil has prompted most Wall Street analysts to push back their forecast of when the next US Federal Reserve interest rate rise will occur, from March to June at the earliest.

US stock markets have taken a battering in recent weeks over concerns caused by the economic slowdown in China, which has in turn led to lower commodity and oil prices, while the weaker yuan has made Chinese exports cheaper than those from the US.

The Dow Jones is down some 8.5% since the start of the year, the S&P 500 is down more than 9% since January 1 and the NASDAQ is lower by 14%.

US economic growth in the last three months of 2015 also slowed dramatically, to 0.7% compared with the same period a year earlier, falling from 2% three months earlier.

Deutsche Bank has been fined $258 million by the New York State Department of Financial Services and the Federal Reserve for working with Syria and Iran.

Employees who worked on the illegal transactions must not work with the bank again, the Federal Reserve said.

Deutsche Bank also violated various New York state laws and is paying the two agencies separately.

“The company did not have sufficient policies and procedures to ensure that activities conducted at its offices outside of the United States complied with US sanctions laws,” an official from the Federal Reserve said.

The Fed is requiring Deutsche Bank to create an “enhanced” program to “ensure global compliance” with US sanctions, characterizing its transactions with Syria and Iran “unsafe and unsound”.

Deutsche Bank said in a statement that the conduct had stopped several years ago, adding: “Since then we have terminated all business with parties from the countries involved.”

Two French banks, BNP Paribas and Credit Agricole, received higher fines from the US for working with US-sanctioned countries.

US economic growth slowed sharply in Q3 of 2015.

According to the Department of Commerce, the US gross domestic product (GDP) grew at an annualized pace of 1.5% in Q3 of 2015, down from a rate of 3.9% in Q2.

The slowdown was partly due to companies running down stockpiles of goods in their warehouses.

On October 28, the Federal Reserve kept rates unchanged and said the economy was expanding at a “moderate” pace.

Low oil prices have hit American energy companies so far this year.

However, lower fuel prices have been good news for consumer spending, which accounts for more than two-thirds of US economic activity.

Consumer spending grew at 3.2% in Q3, down from 3.6% in the second but still a strong reading.

Analysts said that the running down of warehouse stockpiles in Q3 was likely to be a temporary effect and they expected growth to accelerate again in Q4.

For several months there has been intense debate about when the Fed will raise interest rates, and now the focus is on its last meeting of the year in December.

The Fed has said in past statements that it expects to raise rates in 2015, and that labor market participation, inflation and the global economy would be the key factors in its decision.

In its latest statement on October 28, the Fed said: “In determining whether it will be appropriate to raise the target range at its next meeting, the committee will assess progress – both realized and expected – toward its objectives of maximum employment and 2% inflation.”

However, the Fed dropped comments, which had been used in the previous month’s statement, that weaknesses in the global economy could affect the US.

Financial markets interpreted this as a sign that the Fed might be more likely to raise rates in December.

According to revised official figures, the US economy expanded more than previously estimated in Q2 2015.

The US Commerce Department said the economy expanded at an annualized pace of 3.9%, rather than 3.7%.

The overall US economic growth was due to strong consumer spending, business investment and residential construction.

Photo Getty Images

It rate is much higher than the 0.6% rate recorded in Q1 2015.

The growth rate is expected to have slowed in the current quarter, but in a speech on September 24 Federal Reserve head Janet Yellen said economic growth appeared “solid” and the US remained “on track” for an interest rate rise this year.

Janet Yellen said as long as inflation was stable and the US economy was strong enough to boost jobs, the conditions would be right for a rise.

US interest rates have been held at near-zero since the 2008 financial crisis. When they finally do rise, it will be the first interest rate increase in nine years.

Stocks on Wall Street made a bright start in the wake of the GDP figures and Janet Yellen’s comments, with the Dow Jones rising 1% in morning trade.

Oil prices and stock markets around the world have seen further falls, sparked by the renewed fears over the health of the global economy.

China shares fell 1.5% after the authorities intervened again on the stock market to little effect.

Expectations of a US interest rate rise dimmed after the Federal Reserve said the economy was not ready yet.

On Wall Street, the Dow Jones index opened 1% lower, while markets in Paris and Frankfurt fell more than 2%.

London’s benchmark FTSE 100 index shed 0.56%, while the price of Brent crude oil was down 0.4% at $46.97 a barrel, although US crude recovered from earlier falls to stand 0.6% higher at $41.35.

On August 19, the Fed released minutes from its meeting on July 28-29, showing that one policymaker was ready to vote for an interest rate rise at the meeting.

Overall, the Fed thought conditions for a US rate rise “were approaching”, but the economy was not ready yet.

Other policymakers remained concerned that inflation would remain weak because of the strong dollar and falling commodity prices, which act as a double depressant on imports.

The Fed’s key interest rate has been kept near zero since December 2008.

There has been speculation that the Fed will raise rates at its meeting in September, and last month Fed chair Janet Yellen said she thought a rate rise this year was likely.

Following the release of the Fed’s minutes, US stocks rallied briefly but then fell back, while the dollar weakened on the currency markets. The Dow Jones index ended August 19 trading down 0.9%.

The committee also cited China as a potential problem, saying that a “material slowdown” in the Chinese economy could affect the US economic outlook.

The FOMC’s meeting came before last week’s action by China to weaken its currency.

After days of volatility, Chinese stock market traded lower once again on August 20, despite Beijing’s efforts to calm markets.

China’s Shanghai Composite closed 1.5% down at 3,735.92 points.

The fall comes after the index saw strong volatility earlier in the week.

Traders appeared not to respond to efforts by the central bank to provide more liquidity to stabilize markets.

In assessing the strength of the US economy, the Fed has been keeping an eye on the US jobs market – where the unemployment rate has been falling and is now 5.3%. However, inflation is still below the Fed’s target of 2%.

The minutes from the Federal Open Market Committee’s (FOMC) July meeting noted that the labor market “had continued to improve, with solid job gains and declining unemployment”.

However, when assessing inflation, it said that “some members continued to see downside risks to inflation from the possibility of further dollar appreciation and declines in commodity prices”.

The FOMC said it would continue to monitor inflation “closely, with almost all members indicating that they would need to see more evidence that economic growth was sufficiently strong and labor market conditions had firmed enough for them to feel reasonably confident that inflation would return to the committee’s longer-run objective over the medium term”.

Inflation figures released earlier on August 20 showed that consumer prices rose by 0.1% in July, and were 0.2% higher from a year ago.

So-called core inflation, which ignores changes in food and energy prices, also rose 0.1% last month, but was up 1.8% over the year.

US units of Deutsche Bank AG and Banco Santander SA have failed a US “stress test” designed to assess whether lenders can withstand another financial crisis.

The review, carried out by the Federal Reserve, gauges whether the biggest banks operating in the US have the “ability to lend to households and businesses even in times of stress”.

Another institution, Bank of America, has been asked to revise its financial plans due to “certain weaknesses”.

A further 28 banks passed the tests.

Officially known as the Comprehensive Capital Analysis and Review (CCAR), the tests were implemented in the aftermath of the 2008 financial crisis, in which some lenders needed bailouts from the Fed.

All banks with more than $50 billion in assets are subject to the annual examinations, which assess the corporations’ ability to deal with “doomsday” scenarios, such as rising unemployment and plummeting house prices.

In previous years, banks that failed the tests have been forced to suspend dividend payments to shareholders.

In a statement, Deutsche Bank said it had hired 1,800 employees “dedicated to ensuring that its systems and controls are best in class”.

Santander’s US chief executive, Scott Powell, said the bank still had “meaningful work to do to meet our regulator’s expectations and our own standards of excellence”.

However, Santander added that it had not been prevented from paying dividends.

The US economy grew at an annual rate of 3.5% in Q3 2014, the Commerce Department has announced.

That was better than the 3% pace that economists had been expecting and follows the 4.6% growth rate recorded in Q2 2014.

Strong export growth and higher government spending helped to boost growth in Q3.

In a sign of confidence in the US recovery, on October 29 the Federal Reserve ended its stimulus scheme.

The fall in the unemployment rate to a six-year low has helped to boost that confidence.

“Today’s number represents a return to a healthy-looking trend. The most recent IMF forecasts suggest the US economy will grow 3.1% next year and 3.0% in 2016, and these could be revised further upwards in the coming months,” said Ben Brettell, senior economist at Hargreaves Lansdown stockbrokers.

The US economy grew at an annual rate of 3.5 percent in Q3 2014

The report was the first of three estimates of gross domestic product, so the figure could be revised up or down, over the coming months.

Growth was lifted in the third quarter by a sharp increase in government spending, which itself was boosted by a surge in defense expenditure.

Exports were another area of strength, they rose at an annual rate of 7.8%.

There will be a question over whether that pace can be maintained as important export markets for the US are struggling.

Growth in many European countries is stagnant and the Chinese economy is slowing down.

Consumption growth was relatively weak in the third quarter, running at an annual rate of 1.8%, but economists expect that to improve.

Overall it has been a volatile year for US growth data.

In Q1 2014 the economy contracted at an annual rate of 2.1% after severe weather hampered economic activity.

But Q2 2014 saw a rebound, growing at an annual pace of 4.6%.

Taken together the latest two quarters are the strongest consecutive quarters of growth since the second half of 2003.

On October 29 the Fed announced the end of its quantitative easing (QE) stimulus program.

QE started in November 2008 amid the financial crisis and fears that the US, and the rest of the world, might be facing another great depression.

Since then the Fed has bought $3.5 trillion of US government debt and bonds created out of home loans or mortgages.

It began to phase out the scheme last year and a fall in unemployment to 5.9% has encouraged the Fed to end it altogether.

However, interest rates will remain at a record low for a “considerable time” according to the US central bank.

The Fed has cut its growth forecast for 2014 due to the harsh winter weather.

The US central bank is now predicting growth of between 2.1% and 2.3% for this year, down from its March forecast of 2.8% to 3%.

In its accompanying statement, the Federal Reserve said that economic activity had “rebounded in recent months”.

As expected, the Fed has also trimmed back its stimulus program by $10 billion a month to $35 billion.

The Fed has cut its growth forecast for 2014 due to the harsh winter weather

The central bank has been buying bonds to keep long-term interest rates low and encourage banks to lend.

This is the fifth cut in purchases since December and it is expected to stop buying bonds altogether by the autumn.

However, Fed chairman Janet Yellen stressed that this was not a pre-set program and if necessary it would change course.

As far as interest rates go, the bank said they would remain near zero “for a considerable time” after the bond buying ends.

On inflation, Janet Yellen said she expected it to remain at or below the target of 2% until the end of 2016. Low inflation would enable the bank to keep interest rates low. Currently, they are not expected to rise until the middle of 2015.

The Fed expects growth to pick up again in 2015, sticking to its prediction of 3% to 3.2% expansion.

“Economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually,” the central bank said.

“Household spending appears to be rising moderately and business fixed investment resumed its advance.”

Janet Yellen added in a press conference afterwards that “over the next two years, the projections for real GDP growth remain somewhat above the estimates of longer-run normal growth”.

The US Labor Department has announced that the country’s economy added 162,000 new jobs in July.

The figure – which measures the number of jobs outside the US farming sector – was below economists’ expectations of more than 180,000 and the government also cut its previous estimates for hiring in May and June.

Nonetheless, the new jobs helped the unemployment rate to fall to 7.4%.

That was down from 7.6% and is the lowest jobless rate in four years.

The news adds to the picture of a slowly growing US economy and may make its central bank more likely to end its monetary stimulus programme.

The Federal Reserve is currently buying $85 billion a month in bonds which helps to keep borrowing costs low.

However, there is much speculation as to when the Fed will start to rein in this stimulus programme.

US economy added 162,000 new jobs in July

Its chairman, Ben Bernanke, has said that it might start cutting down the rate of bond buying by the end of the year and stop altogether by the middle of 2014, depending on the strength of the economy.

Earlier this week, figures showed that the US economy grew at a faster-than-expected annualized pace of 1.7% in the second quarter of the year.

That was up from the growth rate for the first three months of 2013, which was revised lower to 1.1% from 1.8%.

Gordon Charlop, of Rosenblatt Securities said the figures were moderately encouraging: “The idea that the unemployment dropped at all, went below 7.6%, is showing that the trend is going the right way.

“We’re sort of grinding along here. We’re not surging. I don’t think there’s anything here that will cause the Fed to do anything significant.”

Revisions to previous months’ data saw May’s jobs increase downgraded to 176,000, below the 195,000 previously estimated, while June’s increase was lowered to 188,000, from the 195,000 originally reported.

Paul Ashworth, chief economist at Capital Economics, said despite that, the employment picture was much brighter than last year: “While July itself was a bit disappointing, the Fed will be looking at the cumulative improvement.

“On that score, the unemployment rate has fallen from 8.1% last August, to 7.4% this July, which is a significant improvement.”

Other figures released on Friday confirmed the picture of moderate economic growth.

US consumer spending and inflation both rose in June, with the US Commerce Department saying spending was 0.5% higher and annual inflation running at 1.3% – although that is still well below the US target of 2%.

The US economy grew at an annualized pace of 1.7% in the second quarter of 2013, the Commerce Department has said.

That was a faster pace than expected by economists.

It was also up from the growth rate for the first three months of 2013, which was revised lower to 1.1% from 1.8%.

A slowdown was widely expected due to the impact of federal spending cuts, but also from the continuing weakness in the global economy.

In March, $85 billion of public spending was cut as a result of a deal between Democrat and Republican politicians.

But the Commerce Department said that the federal government cut spending by only 1.5% in the April-to-June period, compared with a sharp drop of 8.4% in the first quarter.

The US economy grew by 0.4% in the second quarter compared with the previous three months. That compares to 0.6% growth in the UK in the same period.

The US economy grew at an annualized pace of 1.7 percent in the second quarter of 2013

The eurozone’s GDP figures are released on August 14. The 18-member region shrank 0.2% in the first quarter – the sixth quarter of decline in a row.

“We have an upside surprise in the GDP, which speaks volumes for the job recovery that we’re putting together,” said Andre Bakhos, a market analyst at Lek Securities in New York.

“The recovery in the economy is starting to take root. This will be an interesting development given the fact that we’ll have a Fed announcement today.”

The Federal Reserve meets on Wednesday to make its latest statement on its massive bond-buying programme to stimulate the economy.

Consumer spending accounts for about 70% of US GDP. Official figures showed that consumers spent less in the second quarter than in the first, with personal consumption expenditure up 1.8%, compared with 2.3% previously.

As well as the last set of quarterly figures, the Commerce Department also revised growth figures going back several decades.

It said the US economy now grew by 2.8% in 2012, up from its previous estimate of 2.2%. This may help to explain why growth appeared weak last year but hiring continued to improve.

The government also said that the economy contracted by 4.3% during the recession, which lasted from December 2007 to June 2009, better than the previous estimate of a 4.7% drop.

The economy expanded by 8.2% from the middle of 2009 through to the end of last year, which was more than the 7.6% previously suggested.

The latest figures showed a pickup in both imports and exports. Exports rose 5.4% in the second quarter, compared with a drop of 1.3% in the first quarter. Imports jumped 9.5%, compared with an increase of 0.6% in the previous quarter.

Global stock markets have fallen after some members of the Federal Reserve suggested its stimulus measures may be increasing the “risks of future economic and financial imbalances”.

The comments came in minutes of the Federal Reserve’s last meeting, where the Fed said it had left its monthly $85 billion bond-buying plan in place.

US markets opened lower on Thursday after recording their biggest drop so far this year on Wednesday.

European markets all closed down.

The Fed comments have raised expectations that the US central bank may scale back its bond-buying programme earlier than predicted.

Currently, the Fed is carrying out its plan of buying $85 billion of bonds a month until the US jobs market sees a substantial improvement.

By buying bonds, the Fed keeps interest rates low, which keeps the cost of borrowing for mortgages and other loans low.

However, the minutes of the Fed’s meeting in January showed that some members were concerned that the bond-buying programmes could push up inflation or could “foster market behavior that could undermine financial stability”.

The minutes said that “a number of participants” commented that an ongoing review of the effectiveness of the bond programme “might well lead the committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred”.

Global stock markets have fallen after some members of the Federal Reserve suggested its stimulus measures may be increasing the risks of future economic and financial imbalances

The bond-buying programme has been cited as a major reason for the rise in share prices in recent weeks, so signs of a premature end have hit stocks.

“US liquidity concerns following the Fed minutes looks like the pin which will burst the recent bubble in equities,” said Mike McCudden, head of derivatives at Interactive Investor.

On Wall Street, the Dow Jones index ended Wednesday down 108.13 points at 13,927.54, and continued to fall on Thursday, shedding a further 61 points by midday in New York.

In Asia, Japan’s Nikkei 225 fell 159.15 points, or 1.4%, to 11,309.13, while in Hong Kong the Hang Seng index closed down 400.74 points, or 1.7%, at 22,906.67.

European markets all fell, with London’s FTSE 100 closing down 1.6% at 6,291.54 and the Cac 40 in Paris falling 2.3% to 3,624.80.

The dollar rose 0.5% against the euro on Thursday, with one euro buying $1.3206.

While the dollar had been boosted by the Fed minutes, the euro was also hit by the latest survey of the eurozone region which suggested the downturn in the region’s businesses had worsened.

The latest eurozone purchasing managers’ index (PMI), compiled by research firm Markit, fell to 47.3 this month, down from 48.6 in January. A reading below 50 indicates contraction.

The figure was the lowest reading for two months and appeared to dash hopes that the eurozone’s economy would show signs of revival.

It also indicated a growing divergence between Germany and France, with output rising in Germany but declining at an increasing pace in France.

“On an even more fundamental level, there is the matter of how money is created in the modern world. If the reference is to the statistics of the Federal Reserve, money held by commercial banks, by the Federal Reserve Banks, or by the U.S. Treasury is not counted in the aggregates; in that sense, money is not manufactured, merely because coins are stamped and paper notes are printed.

Nor does the Federal Reserve System alone create money. Rather, it provides the basis on which the commercial banks (and, now, near-banks as well) are permitted to create money, and applies, through fractional reserve requirements, a limit to the quantity of money that the financial system is permitted to create.

Within that limit, it is the private banking institutions that are overwhelmingly the creators of money.

Money is created when loans are issued and debts incurred;money is extinguished when loans are repaid.

A loan from a bank creates a deposit which the borrower may draw upon for the payment of obligations; the payee is the new holder of new money.

Some existing money in circulation must be acquired by the borrower to repay the capital of the loan; when that is returned to the bank it is withdrawn from circulation.”

[…]

Let me explain to you exactly what I mean. Tomorrow, you go down to your local bank and borrow $10,000. As we’ve already seen, there is actually no money in the bank, except for a few miscellaneous savings accounts and CDs plus whatever balances exist at any given moment in the banking system’s checking accounts. So to complete your transaction, the bank creates $10,000 and credits it to your checking account (Author’s note: It is allowed to do this by statute, not by Law. Actually illegal or not, this action is totally immoral. And it is a little more brazen than what I am portraying. The bank really steals the “note” you sign at the bank and converts it to the bank’s asset).

In return for the creation of this so-called money, you execute a note for $10,000 at 10% interest, due in one year and present it to the bank. The bank creates the $10,000 by a stroke of a pen and puts it in your account, basing the $10,000 on the promissory note you turned over to the bank, which is actually the only legal tender in this transaction (Author’s note: The bank actually takes your created money, the promissory note, and loans it back to you!) Did you ever wonder why banks required you to have an account? It is the only way they can create the money! In one year to the day, you return to the bank and pay them the $10,000 back. This completes the bookkeeping on the original creation of $10,000. It was created one year ago, and it is destroyed by your return of the funds.

The US central bank has announced it will resume its policy of pumping more money into the economy via so-called quantitative easing.

The Federal Reserve said it will buy “additional agency mortgage-backed securities at a pace of $40 billion per month”.

The central bank also said it could increase the size of its purchases if the economy does not improve.

The economy is a pivotal issue in this year’s US presidential election.

The US central bank has announced it will resume its policy of pumping more money into the economy via so-called quantitative easing

Interest rates in the US have been close to zero for several years now, and the Fed again kept them at below 0.25%.

“The committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” said the Fed, led by chairman Ben Bernanke.

US stocks, which had been little changed, gained after the announcement. The benchmark Dow Jones average was 0.7% higher.

The US central bank has tried to support the economy by quantitative easing – buying $2.3 trillion in bonds in two rounds.

The Fed calls such measures “asset purchases”, where the central bank buys bonds to keep the long-term cost of borrowing down. The last round of asset purchases ended last year.

Mortgage-backed securities are debt backed by loans made to homeowners.

The unemployment rate in the US has been above 8% since January 2009, but the current 8.1% is down from the recent high of 10% in October 2009.

“To support continued progress toward maximum employment and price stability, the committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens,” the Fed said.

The Fed also confirmed that its $267 billion programme to reduce long-term borrowing costs for firms and households would continue for the rest of the year.

In a move dubbed “Operation Twist”, the central bank buys longer-term bonds from retail lenders and swaps them for shorter-term bonds.

This website has updated its privacy policy in compliance with EU GDPR 2016/679. Please read this to review the updates about which personal data we collect on our site. By continuing to use this site, you are agreeing to our updated policy.AcceptRejectRead More